Mich. Senate committee approves income tax cut

Thursday

Jan 30, 2014 at 2:00 PM

Associated Press

Michigan’s income tax rate would drop from 4.25 percent to 3.9 percent within three years under a plan approved by a legislative committee on Wednesday, the first move in a likely months-long debate over how best to return some of a budget surplus to residents.

Legislation sent to the Senate would reduce the rate by a tenth of a percentage point each year starting in 2014, followed by a half-percentage point cut in 2017. Taxpayers could save $371 million in the next budget year and $873 million the year the reduction is fully phased in, said the nonpartisan Senate Fiscal Agency.

That equates to about $82 on average per tax return next fiscal year and $194 in the 2017-2018 budget year, according to an Associated Press analysis.

All five Republicans on the Senate Finance Committee voted for the bill, saying the economy does better when more money is in taxpayers’ hands and that people deserve a refund. The two Democrats opposed it by contending that income tax cuts have no discernible impact on economic growth, questioning the harm to government services and calling the plan “modest.”

A surplus carrying over from last year and higher amounts expected to come in this budget year and next total nearly $1 billion, though Gov. Rick Snyder’s administration cautions it mostly is a temporary boost in revenues, not an ongoing one.

The governor supports providing some tax relief this year and is expected to propose a plan in his budget presentation next week. In his recent State of the State address, he mentioned helping “hard-working folk” who are “worried about their bills.”

Legislative leaders could support an income tax cut but have been open to other ideas as well.

Possibilities include sending taxpayers a rebate or upping their personal exemption against the income tax.

“We have a moral obligation to return dollars to the tax-paying public at every opportunity,” said Sen. Dave Robertson, a Republican from Genesee County’s Grand Blanc Township who voted to move the legislation to the Senate.

Also Wednesday, some House Republicans introduced bills that would gradually reduce the income tax rate to 4.05 percent by 2016. Starting in 2017, the rate would automatically drop a tenth of a percentage point each year income tax revenue increases $300 million or more.